Working Paper: NBER ID: w15153
Authors: Eric M. Leeper; Todd B. Walker; Shuchun Susan Yang
Abstract: This paper contributes to the debate about fiscal multipliers by studying the impacts of government investment in conventional neoclassical growth models. The analysis focuses on two dimensions of fiscal policy that are critical for understanding the effects of government investment: implementation delays associated with building public capital projects and expected future fiscal adjustments to debt-financed spending. Implementation delays can produce small or even negative labor and output responses in the short run; anticipated fiscal financing adjustments matter both quantitatively and qualitatively for long-run growth effects. Taken together, these two dimensions have important implications for the short-run and long-run impacts of fiscal stimulus in the form of higher government infrastructure investment. The analysis is conducted in several models with features relevant for studying government spending, including utility-yielding government consumption, time-to-build for private investment, and government production.
Keywords: government investment; fiscal stimulus; economic growth; implementation delays; fiscal policy
JEL Codes: E62; H54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Implementation delays in government investment (H54) | Small or negative responses in labor (J22) |
| Implementation delays in government investment (H54) | Small or negative responses in output (C29) |
| Expected future fiscal adjustments (H68) | Long-run growth effects (O49) |
| Insufficient productivity of public capital (H54) | Government investment can be contractionary in the long run (E62) |
| Speed of fiscal adjustment (E62) | Ability of government spending to offset cyclical movements in macroeconomic aggregates (E62) |
| Initial increase in government investment (H54) | Decline in private investment (E22) |
| Initial increase in government investment (H54) | Decline in labor (J89) |
| Interaction between government investment and fiscal financing methods (E62) | Varied outcomes on the economy (F69) |